News from Japan: Japan – January Forecast Actual
Tertiary Industry Index (MoM) +0.7% +0.7%
Leading Economic Index (F) 30.0% 36.4%
Coincident Index (F) 22.2% 20.0% Japanese stats were pretty close to forecasts, the Tertiary Index seeing the first rise in 4 months and in line with forecasts. Much of the gain was due to the positive retail sales figure in January which itself came on the back of the cold spell which fuelled sales of heaters. Dollar-Yen’s decline of over 300 points during this morning’s frenetic opening caused several Japanese officials to comment that they are watching currency moves closely. No doubt their mouths were hanging open like the rest of us… It was the usual comments on “undesirable excessive fluctuations” but still no comment on the possibility of intervention which hasn’t been seen from the MOF in around 5 years. We wouldn’t expect them to pre-announce it anyway… And following the Fed’s 25bp cut in the discount rate and the launch of a new discount facility the market is now gossiping about how much the Fed will cut by tomorrow. Futures moved to discount almost a 100bp cut – up from 75bp on Friday. With Friday’s softer than expected CPI numbers there is the belief that maybe the Fed is right and the recession will also bring lower inflation and in turn allow them to cut rates more aggressively. The U.K. Independent Newspaper is also reporting that Bernanke will be holding an emergency meeting with Bush & Paulson to discuss the degree of the cut which they want to restore confidence in the financial system. The article declared that Bernanke was having his arm twisted to make the cut 100bp. The news of both the size of the anticipated rate cut and that JP Morgan and Bear Stearns have agreed for a buyout of the latter for a price of just $2.00 per share. This compares to Friday’s closing stock price of $30.0 and a high last year of $170.0. It has stabilized the Dollar but there is little in the way of positive market sentiment as they mull the chance of more banks going down the same steep hill. It’s an uneasy calm though…
The following economic releases are due today:
Q4
Euro-zone Employment (QoQ)
Euro-zone Employment (YoY)
U.S. Current Account Balance US$ -184.4bn
January
Adjusted Retail Sales (YoY) +2.7% February
U.S. Industrial Production (MoM) - 0.1%
U.S. Capacity Utilization 81.3% March
U.S. Empire Manufacturing - 6.30
U.S. NAHB Housing Market Index 20.0
This morning’s analysis has been tough. Within minutes of identifying support/resistance levels they have been broken by 50 points or more. I have attempted therefore to concentrate on the levels that appear to have larger implications but frankly with this degree of movement it not a day for trying to pick tops & bottoms.
The concerning thing is that the longer term weekly targets have in most cases been broken. This isn’t by too much against the Euro, nor perhaps the Swissie which has reached lower targets which I didn’t think would be tested but Dollar-Yen has slipped through targets with consummate ease. It would be easy just to jump on the bearish bandwagon and frankly there doesn’t appear to be much arguing against that. However, the one dominant feature in the market is fear and this is what is causing the exaggerated movements. This will mean that even short Dollar positions should be watched very closely. Any factor such as central bank intervention would cause panic and mayhem in the opposite direction, closely following by very erratic two way trading. So the message today is that it is hard to argue against a bearish Dollar but even with short Dollar positions a great deal of care should be taken. Prices tend to gap at these times and stops can often get filled well away from the actual set levels. Bear in mind the support & resistance listed but beware also that overshoots/undershoots can also occur.
Note important support and resistance areas:
USDJPY EURUSD USDCHF GBPUSD
Res: 98.50-85 1.5986-05 0.9900-45 2.0275-85
Res: 97.41-50 1.5900-34 0.9800-50 2.0182-20 Spt: 95.95-27 1.5730-50 0.9644-60 2.0089-96
Spt: 95.05-25 1.5650-85 0.9595-06 1.9960-94 | 
